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Tesla Investor’s Suit Targets Vote on Texas Move, Musk Pay

Tesla Investor’s Suit Targets Vote on Texas Move, Musk Pay
Signage outside the Tesla Gigafactory under construction in Austin, Texas, U.S., on Tuesday, Feb. 1, 2022. Tesla aims to deliver a few Model Y vehicles from its Gigafactory Texas by the end of the quarter, Electrek reports citing unidentified people familiar with the matter.

A Tesla Inc. shareholder sued to challenge an upcoming proxy vote about whether the electric-car maker should move its corporate home to Texas and re-approve a $56 billion pay package for co-founder Elon Musk that was thrown out by a Delaware judge. 

Donald Ball, who owns more than 28,000 Tesla shares, argues the company is violating its corporate charter by saying it needs only a bare majority of shareholders’ votes in the June 13 proxy fight to move its state of incorporation away from Delaware.

Ball also accuses the world’s third-richest person of trying to force investors into voting for the Texas move and his resurrected pay package with threats about shifting artificial intelligence assets away from Tesla.

Read More: Elon Musk’s Pile of Lawsuits Span Autopilot, Toxic Speech, AI

“Musk has engaged in strong-arm, coercive tactics to obtain stockholder approval” of both proxy questions, Ball said in his 21-page complaint filed Thursday in Delaware Chancery Court. He sued Tesla directors along with Musk.

John Reed, a Wilmington, Delaware-based lawyer representing Tesla, had no immediate comment. An email to Tesla’s media relations department wasn’t immediately returned.

Record-Setting Pay

The suit is the latest twist in the fallout from Delaware Chancery Judge Kathaleen St. J. McCormick’s decision in January voiding the record-setting executive-compensation plan that Tesla’s board approved for Musk in 2018. McCormick ruled that the board had conflicts of interest and that Tesla failed to properly disclose the plan’s details.

McCormick will consider July 8 whether to approve a request for billions of dollars in legal fees from lawyers for the Tesla investor who challenged Musk’s pay.

Musk has been threatening to shift Tesla’s corporate home from Delaware to Texas in the wake of McCormick’s ruling and Tesla called the proxy vote to try to get investors to back the move and the reinstatement of his pay plan. Texas is in the process of setting up a new business-court system that some legal experts believe would be more friendly to corporate titans such as Musk.

Musk already moved other companies he runs out of Delaware for incorporation purposes in the wake of McCormick’s ruling. He has encouraged business owners to shift their incorporations out of the state, which is still the corporate home to more than 70% of Fortune 500 companies. The state’s chancery court is the premier US venue for corporate litigation and its judges are recognized as business-law experts.

‘Entirely Repeal’

Ball argues that because Tesla is seeking to “entirely repeal” the company’s current charter with the Texas move, it’s misleading for shareholders to be told in proxy disclosures that majority approval is sufficient. He says Tesla needs more than 66% of shareholders to sign off under Delaware law and is asking a judge to void the outcome of the vote if it falls short.

The investor also alleges Tesla directors failed to fully disclose the implications of re-approving Musk’s pay, including tax implications for the EV maker. The tax hit could wipe out two years of profits for the EV maker, totaling more than $27 billion, according to the suit. Among the directors named in the suit are board Chairman Robyn Denholm and directors Kimbal Musk and James Murdoch. Kimbal Musk is Elon Musk’s brother while Murdoch is the son of media magnate Rupert Murdoch.

Musk also is violating the rules governing proxy votes by threatening to step down as Tesla’s technoking — his preferred title – and take its AI assets with him, according to the suit. Musk has been openly campaigning for a resinstatement of his pay package.

This week, Musk confirmed he diverted artificial intelligence chips away from Tesla to his X Corp. social media platform and xAI Corp. venture. The chips are made by Nvidia Corp. Musk said they were redirected because Tesla had no place to store them.

Ball also seeks a ruling that Tesla directors failed to properly disclose enough details of the incorporation shift and re-ratification of Musk’s pay so that investors can “make a fully informed decision” on those issues. The case is likely to be assigned to McCormick, who has presided over several cases over Musk’s actions in recent years.

The case is Ball v. Tesla, 2024-0621, Delaware Chancery Court (Wilmington).

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